United States
Environmental Protection
Office of \ , 3ter
Program Operations (WH-546)
Washington DC 20460
                          EPA 430/9^84-006
                          June 1984
User Charge Guidance Manual
for Publicly-Owned
Treatment Works

User Charge
Guidance Manual

For Publicly-Owned
Treatment Works
         I1 S. F: vironmental Protection Agency
         ^p>;. v>. Library
         2..-0 Sci!-h Dearborn Streat
         ChiccfcO, Illinois G0604


This document manual has been prepared by the Office of Water Program Operations, U.S. Environmental
Protection Agency, and approved for publication. Approval does not signify that the contents necessary
reflect the views and policies of the U.S. Environmental Protection Agency, nor does mention of trade
names or commercial products constitute endorsement or recommendation for use.

This document is based upon information contained in Volume 6 of Management Assistance Document
Series entitled User Charge and Related Revenue System Requirements for Publicly-Owned Treatment
Works prepared by Arthur Young &  Company for the United States Environmental Protection Agency
and the New Jersey Department of Environmental Protection in May 1981.
This document is designed to
supplement the Interim Final
(May 12, 1982) and Final
(February  17, 1984) Construc-
tion Grants Regulations
U.S. Environmental Protection Agency
Office of Water Program Operations (WH-546)
Washington, D.C. 20460
 U.S. Environmental Protection Agency

Introduction	i
Organize The Project Team	1
Organizational Structure And Support Functions	2
Rate Setting Methodology	6
Developing A User Charge Ordinance	8
Overall Revenue Strategy For Total Operating Cost Recovery	9
User Charge Regulatory Requirements	11
Key User Charge Regulatory Requirements As A Condition Of
Receiving A Construction Grant	13
Key User Charge Regulatory Requirements After Construction
Grant Is Awarded	14
Appendix I	15
Appendix II	16
Formula Definitions	18
Appendix III	20
Appendix III-A	23
Definitions	24


The role of proper financial management is as
importantto successful operation of a publicly owned
wastewater treatment utility as proper facility
planning, engineering design, equipment selection or
operator training. A user charge system, which is an
important aspect of financial management, should be
designed to assist the wastewater utility in achieving
financial self-sufficiency, place the costs of pollution
abatement directly on the sources of pollution
(proportionately), and ensure the  conservation of
potable water.

A wastewater utility must develop a revenue
generating system that recovers its total cost of
operations. An adequate and proportional user charge
system is a major factor in the development of a
self-supporting utility.  User charges represent,
however, only one element in the total revenue
strategy. The overall revenue strategy should be
capable of recovering all of the utility's operation
costs. Recouping all costs is sound financial
management and essential if a wastewater utility is
to become financially self-sufficient.

Congress and the Environmental  Protection Agency
(EPA) have recognized the significance of proper
financial management and its relationship to
acceptable wastewater treatment  system perfor-
mance. As a result, wastewater utility management
must develop an EPA approved user charge system,
before Federal grant assistance will be awarded for a
wastewater treatment project.

 The intent of this manual is to assist wastewater
 treatment works managers—particularly financial
 planners, rate designers, and engineers—of small and
 medium sized communities, regardless of Federal
 grant assistance, in understanding the various
 procedures  needed to develop a  user charge system
 and other cost  recovery concepts.
Information presented in this manual provides typical
work steps and concepts for developing and
implementing a user charge system as well as
developing a strategy for recovering other operating
costs. This material addresses: the types of personnel
(project team) needed to develop and operate a user
charge system; organizational structure and support
functions; rate setting methodology; user charge
ordinances; overall revenue recovery and EPA
regulations concerning user charge systems.

The reader should be aware that EPA regulations have
certain constraints and/or prohibitions that either
modify or limit the range of activities available to
wastewater treatment works managers in the
development of a user charge system.  These
regulations must be followed in  order to  receive a
construction grant.

This document offers guidelines for the development
of user charge systems. Since each system must be
tailored to reflect the unique conditions of the
treatment system it will support, the make-up of the
project team, customer data, rate structure,
ordinances, etc., will most likely  vary from the
examples in this manual. Please note, this document
is designed to supplement the Interim Final (May 12,
1982) and Final (February 17, 1984) Construction
Grants Regulations.


Developing and implementing a successful user charge
system requires the expertise of professionals in sev-
eral different areas. In most instances assistance from
financial, legal, engineering, planning, and administra-
tive personnel will be necessary.

A wastewatertreatment utility needsfinancial person-
nel who have a good working knowledge of thetheory
and practice of public enterprise fund accounting. Fi-
nancial  personnel will  be required to: estimate opera-
tion, maintenance and replacement costs (0,M&R);
evaluate the economic impact of user charges upon
various users or user categories, develop a proportion-
ate user charge system and preliminary rate estimates;
forecast the degree of change required to modify exist-
ing budgeting, billing and accounting functions to ac-
commodate a usercharge system; determine annually
if user charges should be revised and, with regard to the
capital financing of the facility, recommend the type of
bonding mechanism which best suits the system's fi-
nancial  capability.

In addition to financial assistance, a wastewater treat-
ment utility needs legal personnel to identify interjuris-
dictional relationships affecting a user charge system
and prepare the appropriate intermunicipal service ag-
reements. Legal services are also required to assure that
the proper inter-relationship exists between the user
charge  ordinance, sewer use ordinance, and the pre-
treatment program  (if required).

Engineering expertise is needed by a wastewater utility
to: define unit processes and process loads; and estab-
lish a method of reconciling total plant loadings with the
 results  of user samplings.

The projectteam should also include planning person-
 nel. Their responsibility will be to forecast new develop-
 ment trends, demographic trends and areas targeted for
 growth. They must be able to identify new industries
 which could have an impact on waste loadings.
In order to successfully implement a user charge system
sufficient administrative support staff should be availa-
ble and have the capability to: compile and maintain
customer records, perform customer service functions
and handle user inquiries; and provide other adminis-
trative services associated with developing and imple-
menting a user charge system.

If sufficient financial, legal, engineering, planning or ad-
ministrative personnel are not employed by a wastewa-
ter treatment enterprise, management may want to con-
sider contracting with the appropriate consultants.

Before soliciting  consulting services, management
should determine: what needs cannot be met by exist-
ing staff;  specific accomplishments to be achieved; the
type of consultants to be hired; and what level of exper-
tise is required.

Coordinating the activity of the project team is the re-
sponsibility of the chief administrative officer (public
works director, superintendent, etc.) He or she must be
involved in the development of a user charge system
to provide the overall direction and organization for
achieving operating goals, objectives, and policies.

The overall organizational structure of a wastewater
treatment utility and the support functions it provides
affects not only the type and way services are
provided, but also the development of the user charge
system. In orderto develop a self-supporting utility in
concert with a proportionate user charge system,
management must carefully analyze its organizational
structure and support functions.

Organizational Structure

The wastewater utility's structure will reflect its
political, financial and operational environment.
There are a broad range of possible structures,
however, most are variations or combinations of the

  As a municipal department, the utility usually exists
as a department within the local  government. The
financial structure is generally integrated into the
general municipal account; and the budget is usually
part of the general municipal  budget. Usually, the
municipal department structure provides elected
officials with complete control of the  utility. The  key
financial issues fora municipal departmentare raising
capital and operating revenue. If the municipal budget
is financially strong, the department can obtain less
expensive capital, i.e., general obligation or revenue
bonds. As a department within a local government,
the utility has the capability of being able to draw on
the general fund  when unexpected shortfalls occur.
This type of borrowing capability, however, does not
encourage self-sufficiency.

Additionally, when a utility is operated as a municipal
department, its support functions (indirect costs), e.g.,
accounting, budgeting, data processing, purchasing,
etc., are generally performed by other municipal
departments. For small utilities, having these
functions performed by other departments is
beneficial, since the utility could not afford to maintain
the same level of service by itself and it avoids
unnecessary duplication of activities.  For larger
utilities, however, this type of support is frequently
inadequate to serve the utility's needs. In any case,
not charging indirect costs  to the utility gives a false
impression that it is  self-supporting when in fact the
general government and the entire tax base are
supporting the operation.

  As an enterprise system, the wastewater utility is
operated as a business by the general purpose local
government which ownsand manages the system. A
utility can be operated as an enterprise if it is entirely
self-supporting. To be  self supporting, a utility must
establish a system of fees and charges that generates
sufficient revenues to pay for all operating costs,
including the replacement of equipment, and debt
retirement. The financial aspects of the system are
separate from that  of the general governmental
operations, and the enterprise fund is  maintained
independently to accountforthe assets, liabilities, and
fund equity of the system, as well as its revenue flow,
operations, and non-operating expenses. Capital
financing may  be obtained through either general
obligation or revenue bonds. Repayment will usually
come from user fee revenues.  General purpose
governments, which operate a utility as an enterprise,
usually reserve general obligation debt capacity for
non-revenue generating facilities so that general
revenues or taxes can be used to repay such debt.

A wastewater enterprise utility may need to
"purchase" support services from the  general
government unless it is large enough to support
full-time administrative and  financial personnel.
However, these indirect costs are reflected in the
accounting for the enterprise fund and appropriate
reimbursements, are made to the general fund for
services rendered. If an enteprisefund experiences a
deficit, it may borrow available revenues by means of
inter-fund transfers, but this represents a liability and
must be repaid.

While large municipal system owners  usually
maintain utilities as enterprises, small  cities and
towns can also successfully  use this approach if the
self-supporting concept is applied. The advantage of
thisapproach isthatthefinancial integrity of the utility
system can be upheld without depending on general
government support.  In either  case, the local
government retains management control and
rate-setting powers.

  As a municipal authority, the municipality retains
ownership of the utility while most management
control is vested in the authority. The authority (board
or commission) is appointed by the local elected
officials. Terms of office are generally  overlapping.
Financial and accounting systems are completely
separate from the municipality's. The authority is
generally vested with the power to establish its own
budgets and set utility rates without municipal
approval. The authority may also be empowered to
issue bonds, although voter or elected official
approval may be required. The major advantage of
this type of structure is its operational autonomy. This
autonomy provides insulation from political pressure
concerning budgets and rates.

  As an independent authority, or special service
district, the utility is usually created by a special act
of the State legislature which defines how the
authority is to be structured and operated. A board or
commission arrangement is the typical governing
structure which can be amended  only by State
legislation. Through creation of such  an authority, a
municipality can shift the burden of a substantial
service to  an essentially separate jurisdiction.
Ownership of the utility  rests with the authority.

The degree of control a municipality can maintain over
an independent authority depends on the enabling
legislation. Control over appointments to the
governing board, its composition, terms of office, and
the use of surplus revenues are all mechanisms which
a municipality can use to hold the independent
authority accountable to municipal interests. In
practice, however, a satisfactory balance between
independence and accountability is difficult to

  Asa regional treatment authority,tbe utility may be
created by either a contract between several political
subdivisions (subscribers) or by a special act of the
State legislature. The governing board or commission
is either appointed by the subscribers or elected by
popular vote. The major advantage of a regional
authority  is that it can achieve  a greater economy of
scale when compared to the individual wastewater
operations of subscribers.

If the regional  agency is authorized to bill the
individual  users within the system, only one revenue
program and rate ordinance is required. If the regional
agency bills the subscribing agencies, which in turn
bills the individual users, separate revenue programs
are required for the regional and each subscribing
agency. Each subscribing agency must also adopt its
own rate ordinance based on the approved  revenue
program.  (The enabling  legislation or contract
specifies the degree of financial and operational
autonomy enjoyed by the authority.)

In conclusion, there is no "best"  organizational
structure.  While structure is important,  it is  only one
of several factors that determines successful utility
operation. There are financially and managerially
strong systems under each organizational alternative.
Experience, however, suggests that the more
financially capable a utility is in meeting its short-term
(operating) and long-term (capital) requirements, the
less the need, from a financial perspective, for revising
the organizational structure.
Support Functions

Regardless of which institutional structure is estab-
lished certain support functions must be provided.

  Engineering and Operating Data Collections

A wastewater treatment utility consists of a  number
of working systems (unit processes) that must be
operated and maintained. These unit processes
include the collection system, preliminary treatment
(grit removal and screening) primary treatment,
secondary treatment, solids handling, and disinfec-
tion. Each unit process is designed to deal with one
or more of the main characteristics of normal
domestic sanitary sewage, i.e. volume (flow) and
loadings (biochemical oxygen demand (BOD) and
suspended solids (SS). For example, the collection
system is designed to accommodate a specific volume
of wastewater; screening and grit removal  are
designed to reduce suspended solids; and  primary
treatment is designed to reduce both BOD and SS.

Identifying these unit processes and their purpose in
terms of flow, BOD, and SS requires accurate
operating data and engineering judgment. This
procedure should be performed early in the user
charge system development process and when plant
improvements or additions are made.

The allocation of operating data to the unit processes
is also essential  to the establishment of an  equitable
user charge system.  Labor (hours), chemicals,
supplies, equipment replacement, the operating time
of motors, and power requirements must be allocated
among the various unit processes. The information to
develop these allocations can usually be obtained
from time and material distribution sheets for the

Once unit processes have been identified and
operating data allocated, OM&R costs can be

The next step involves the establishment of sampling
 programs at certain key locations in the sewerage
system and at discharge points of major users.  This
 allows utility management to adequately identify
 users based on their wastewater characteristics (flow
 and loadings). The flow and loadings information
 (BOD, SS or other appropriate constituents) obtained
 fromthesampling programwill be used incalculating
 proportional user costs.

    Budgeting Procedures

  Management should first define what constitutes a
  capital expense and what items constitute operation
  maintenance and replacement (O&MR) expenses. '
  (Replacement costs include such items as: pumps,
  motors, motor vehicles, blowers, etc.)

 Capital outlays are normally included in the capital
 program: a budget which involves development of
 short- and long-term plans to  refurbish and expand
 the utility's physical facilities. This includes planned
 expenditures for improvements and betterments to
 buildings, land,  sewers and major pieces of
 equipment which have significant value and extend
 the useful life of the treatment works.

 The current expense (operating)  budget includes
 those items considered to be routine operation,
 maintenance, and replacement expenses. The
 operating budget generally involves development of
 a one-year action plan for the day-to-day operations
 of the treatment works. This budget can include
 planned expenditures for salaries, supplies, chemicals,
 normal maintenance expenses, and outlay for new or
 replacement equipment. (See Appendix I for
 examples of typical operating budget items.)

 The budget should identify 0,M&R costs in total and
 by  unit processes (i.e., collection  system, primary
 treatment, secondary treatment, etc.). To accomplish
 this requires that total OM&R costs be allocated in
 accordance with  the operating  and engineering data
 discussed above. (See Appendix II).

 Once unit process costs have been established, the
 next step is to divide these costs by the total annual
volume and/or loadings, as appropriate, to produce
unit costs. Unit costs are then multiplied by the flow
and loadings of the user classesto establish an annual
rate in proportion to the demand on the wastewater
  Accounting Systems

  Wastewater utilities should establish an accounting
  system that reflects the budget system and conforms
  togenerally accepted accounting principles. Installing
  such a system requires establishing the books of
  account, formulating a plan for gathering information
  determining the number and type of accounts,
  records, and documents, and establishing billing and
  collection procedures.

 The revenue structure of the accounting system
 should list revenues by user classes, compare actual
 receipts to estimates and include amounts billed but
 not yet received.

 The cost structure of an accounting system should
 allow management to separate capital expenses from
 O,M&R expenses and include a formal encumbrance
 system so management can determine assets and
 outstanding liabilities in addition to the account
 balance. The cost structure should also reflect the
 operating budget of the wastewater utility and its unit
 processes. The accounting system should permit
 reports to  be developed which compare approved
 budget figures (appropriations) to actual expenses.

 In many instances enterprise fund accounting is used
 to account for wastewater operations where there is
 a significant potential for financing the utility's costs
 through service charges or where the utility desires
 to know its profit or loss. An enterprise fund is
 designed to gather total costs and to indicate the
 extent to which service charges are sufficient to
 recover total costs.

The typical objectives of an accounting system
include: recording revenues receipts and billings by
individual user and user class; reporting O,M&R costs
in total, and unit process; recording and reporting on
billing and  collection activities; and determining
changes in assets, liabilities, and fund balances

  Customer Recordkeeping System

This may involve the collection of information such
as:  name; address; lot/block number; connections
data; tax assessed values (for ad valorem only); user
classification; and water meter records (where water
consumption  is used as basis for sewerage billing).

Customer records should also be used to store usage
data for each  customer. These records would be
updated periodically based upon reports furnished by
operations personnel.

Providing timely and adequate responses to inquiries
and appeals from users is also an important
recordkeeping function. This is normally handled by
a utility's customer service department. Customer
service activities include: documenting; investigating;
and preparing replies for all inquiries and appeals.
Management should make certain that appeal
procedures are adequately addressed in the user
charge ordinance.

  Manual Versus Automated Information System

As  wastewater utilities become increasingly more
complex to operate and manage, information systems
are becoming more important to  successful
operations. The decision to have  a manual or
automated budget and accounting information
system is influenced by several factors: the size and
nature of the utility; the costs of operating an
automated or manual user charge system, the volume
and transactions which must be processed to support
the system; and the need and frequency of general
 management reports.
  Public Involvement

Throughoutthe process of establishing a usercharge
system, management should develop a program to
keep the publicwell-informed. During the past several
years, proposed sewer rate increases have met with
increasing public resistance. Citizens who are
convinced about the importance of an adequately
financed wastewater system can be a positive force
in mitigating public reaction to rate increases.
However, if rates are found to be excessive, then
citizens can provide suggestions for alternative action.
Overall, citizen involvement will enhance public
awareness and acceptance of the user charge system.
A successful public involvement program will
normally contain: public hearings; workshops;
advisory groups; speaking engagements; and media

 Any community served by a wastewater treatment
 utility is in a constant state of change. As new develop-
 ments for residential and industrial users are planned
 and constructed, wastewater volume and strength
 characteristics will fluctuate. Selecting a  rate-setting
 model normally involves conducting a review to deter-
 mine the number and types of users contributing to
 the utility, their discharge characteristics, and the
 treatment plant's processing capability.

 When developing a user charge system, management
 must determine: 1) who will be billed; 2) what factors
 billing will be based upon; and 3) howthe billing will
 be performed.

 Determine Who  Shall Be Billed for Service

 Wastewater utility managers must be able to identify
 a//users so they can be billed in accordance with user
 charge regulations.  This entails identifying who pre-
 sently receives, but is not being billed for, wastewater
 treatment services. Tax-exempt, not-for-profit organi-
 zations, etc. will  probably be billed for the first time.
 Depending upon a wastewater utility's ability to deter-
 mine which users are currently being billed for treat-
 ment services, managers may have to devote signifi-
 cant effort: to identifying all users of the utility; to
 characterize theirwastes; and to determine the pro-
 cess loads contributed to the facility.

 Once all users have been identified, the next step is the
 establishment of user classes. User classes may vary
 from a single class of users to multiple classes of users.
 The classes should be developed on the basis  of the
 types and/or activities of the users. Generally speak-
 ing, most utilities have a minimum of four user class-
 es: (1) residential, (2) commercial, (3) industrial, and
 (4) governmental/institutional. Each utility should
 carefully review its own customer base to determine
the appropriate classifications.

 Determine What The Billing Shall Be Based Upon

 One of four methods can be used to establish propor-
tionate user charge rates. Presented below, in order
of simplicity, is a description of each method.
 Equivalent Dwelling Unit Rate-This method is typi-
 cally used when metering is not available and the vol-
 ume and strength of all users' discharges are relatively
 equal. This approach is usually employed by com-
 munities of 3,000 population or less. A uniform rate is
 assessed on all users, based on the discharge volume
 and strength of the predominant user class, i.e., gen-
 erally residential. Increments of the rate are assessed
 on large commercial and industrial users based upon
 number of employees, fixture units, or some other ap-
 propriate factor that equates the flow and strength
 from non-residential users to that of residential users.

  Volume-This method is used when  unit processes
 are primarily dependent on  volume (flow) and when
 the discharge strength of all users is substantially
 equal and approximates the strength of domestic dis-
 charge. It would be most appropriate where the users
 of a wastewater utility are primarily residential and
 there are no industrial users whose discharge strength
 significantly exceeds that of domestic sanitary sew-
 age. Individual wastewater flows  must be measured
 or may be based on metered water usage.

  Surcharge-This method normally would be appro-
 priate where some users have high strength
 discharges while a majority of users have discharges
 equivalent in strength  to normal domestic sanitary
 sewage. The surcharge model is based on two
 charges. The basic  charge involves establishing a
 volume rate which is applied to the discharge volumes
 of all users. The second  charge, called a surcharge,
 should be determined  and charged to those users
whose discharge strength exceeds that of normal
domestic sanitary sewage. The surcharge requires  a
calculation of a  rate for each strength-related billing

  Quality/Quantity - This method requires
determining unit costs for volume and strength (i.e.,
Suspended Solids and Biochemical Oxygen Demand
and/or other appropriate parameters) and application
of these unit costs to the quantity and quality of
discharge from each user (user class) to determine
user fees. The quality/quantity rate structure would be
suitable for a facility (utility) where there are a sizeable
number of users with different wastewater
characteristics in terms of the type and concentration
of the discharge. Discharges must be periodically
monitored and analyzed to determine strength

The quality/quantity method should not be used when
there are less than normal strength dischargers. Since
weak strength wastes are more expensive to treat than
normal domestic sewage (because the plant is
designed to function within a specific range of
concentrations), charging weak strength users rates
based on normal domestic strength sanitary sewage
will result in a shortfall.

Determing the appropriate rate-setting model
represents a key step which must be accomplished in
the planning stage of the user charge development
process. Management should be aware that the
volume based model is often appropriate forfacilities
such  as lagoons or in situations where all users
contribute discharges of approximately equivalent
strengths. A volume based  model will generally not
be  adequate when the facilities serve: (1) users (or
user classes) who contribute discharges of
significantly higher strength than normal domestic
sanitary sewage, or (2) users whose discharges
contain additional pollutants such as chromium, zinc,
cadmium, lead, oil or grease, etc.

When selecting the proper  rate-setting model,
management should also consider the anticipated
strength, volume and flow rate characteristics of
future users. Although a volume based model may be
adequate for current users, developing  rates at the
outset using the surcharge or quality/quantity models
may facilitate management's ability to maintain
proportionality forfutu re users without revising their
rate-setting methodology.
Regardless of which rate-setting model is selected,
the utility should incorporate the concept of a
minimum charge as a means of recovering certain
fixed costs that continue to occur whether the utility
operates or not. These include certain kinds of
insurance, payments due under certain contracts, and,
in some cases, all or a certain portion of the
administrative overhead. These costs must be
recovered. The mechanism used for recovery is the
minimum charge. The charge is based upon a
pre-determined minimum flow and strength loading;
and, unless usage exceeds these parameters, the user
pays the minimum charge.

Determine How The Billing Shall Be Performed

Billing for O,M&R costs may be achieved through the
actual  use or ad  valorem tax methods:

   Actual Use - A system of charges whereby 0,M&R
costs are  apportioned to the users (or user classes)
according to their actual use (measured flow and/or
strength parameters) of the  wastewater utility. This
method involves generation of separate invoices to
directly assess each user for services received.

   Ad Valorem Taxes - A system of charges whereby
0,M&R costs are allocated to users based upon tax
assessed values of the property. Since property values
are the basis of the  billing, no  relationship is estab-
lished  between usage and cost. Other negative factors
concerning the ad valorem method are that it does
not promote water conservation  and,  because it is
based  on property values,  the thrifty water user actu-
ally subsidizes  the  extravagant  user.  For  these
reasons, the ad valorem method is not widely used-
nor recommended-as a basis for billing. If federal con-
struction grant funds are involved, please  refer to the
Chapter entitled: "User Charge Regulatory Require-
ments" for a discussion of the restrictions on the use
of an ad valorem system.

In most cases a user charge ordinance will have to be
developed and approved by local government
officials before a user charge system can be
implemented. Each ordinance will have to address
specific issues unique to a locality and be considered
through the local political process.

When wastewater utilities, serving more than one
municipality, are consolidated into a regional system
the "combined" revenue program must cover all
wastewater treatment services that are provided by
the regional system. Each participating agency must
adopt its own user charge system rate ordinance
which will  generate a proportionate share of the
"combined" revenue of the regional system.
A well constructed ordinance will: explain why user
charges are collected; give complete definitions of
terminology; detail how user charge revenues are
utilized; explain the rate structure including the
criteria on which billings are based, actual rates and
how often users are billed; specify penalties for late
payments and non-payment; define the user's
responsibilities for reporting their wastewater
characteristics; outline appeal procedures for users
who question their rates; and  define the
municipality's responsibilities  for informing users
about rate changes. Also, the structure of the
ordinance should be such that rates and charges,
which are subject to annual revision, can be easily
changed without affecting the other contents of the

A model ordinance (Appendix III) and methodology
for developing rates (Appendix III A) are presented in
this manual to serve as a guide for developing an
appropriate user charge ordinance. Since each local
ordinance must be tailored to  reflect the unique
conditions of the treatment system it will support, the
make-up of the ordinance will most likely vary from
the model in this manual.

User Charges represent only one element in a total
revenue strategy. The overall revenue strategy should
be capable of recovering all of the wastewater utility's
essential operating costs. The chapter on rate-setting
methodology outlined the concepts for developing a
proportionate user charge system for recovering the
0,M&R costs associated with the levels of service
provided. There are numerous approaches to
offsetting costs (other than O,M&R costs) which will
allow management to generate sufficient revenues to
support self-sustaining operations, while remaining
responsive to the economic and related concerns of
the communities they serve. While it would not be
practical to address all of the methods which
management might use to recover their total annual
revenue requirements, this section outlines
approaches for determining annual revenue
requirements and methods for generating sufficient
revenues to  meet the annual revenue  requirements.

Approaches  To Determining Annual Revenue

Depending on State regulations, a wastewater
utility's revenue requirements may be determined on
either the "cash basis" or the "rate-return basis." In
this context, the term "cash basis" is used to describe
a methodology for determining  annual revenue
requirements and does not relate to the accounting
method. The cash basis method of revenue
 requirement determination is generally used by
municipally-owned utilities not subject to rate
regulations by a State public utilities commission or
its equivalent. Wastewater utilities which are subject
to such rate regulations will generally be required to
use the "rate-return basis" for determining their
 revenue requirements.

 Determining revenues on the cash basis generally has
the advantage of providing for cash needs on a more
 realistic basis.  Publicly owned wastewater treatment
 utilitiesare generally financed by issuing bonds,and
 the associated debt service costs must be met from
 annual revenues. Therefore, the cash  basis method.
which includes debt service costs as opposed to
depreciation as a revenue requirement, is typically
more attuned to the needs of publicly owned
wastewater utilities. In addition, the goal of a publicly
owned wastewater utility is to recover its costs, not
to make a profit. Revenues determined  on the cash
basis would include 0,M&R expenses, capital outlays
for major rehabilitations, expansions or upgrades,
and debt service requirements. Depending upon the
specific needs of individual public wastewater utilities
there are other optional items, such as the establish-
ment of various reserve funds, which may be included.

The "rate-return basis" method is premised on the
determination of revenue levels that provide a
given rate of return on a defined  investment. This
method requires the determination of a revenue level
which is sufficient to cover annual operating
requirements, depreciation, and provide the desired
rate of return.

Regardless of which basis is used, the key concepts
which management should keep  in mind include:

         Costs required to achieve and maintain
         compliance with  discharge permits, and to
         protect the wastewater  utility's future
         financial viability, must be included in the
         annual revenue requirements;

         Local needs, resources  and constraints
         should be given careful consideration when
         determining other costs included in the
         annual  revenue requirements;

         Financing strategies will impact the
         revenue requirements for any given year
         and should be carefully analyzed in terms
         of their short and long term advantages and

 Methods Of Generating Sufficient Revenues To Meet
 The Annual Revenue Requirements

 The type of rate structure used to recover 0,M&R costs
 should be consistent with the wastewater utility's cost
 of service characteristics and local goals and
 objectives. For recovering costs other than
 0,M&R, management generally has considerable
 flexibility in selecting cost recovery methods which
 best suit their unique circumstances. Three basic
 types of revenue generation (or cost recovery)
 methods which are typically used to recover "other
 costs" are: special assessments; secondary revenue
 offsets; and other service charges.

  Special assessments may be used to recover capital
 costs for proposed wastewater treatment facilities
 (including collection systems) which will benefit
 property owners within a carefully defined area or will
 serve a unique propose. A special assessment amount
 is assessed against and collected from each property
 according to benefit. Property owners are generally
 given the option of  paying the entire assessment
 initially or paying it in installments at a specific interest
 rate. Examples of costs which might be recovered
 through special assessments would include: the costs
 to install sewer connector lines for a new development
 (benefits specific users); and the costs of establishing
 dedicated funds for future development or
 contingencies  (serves a unique purpose).

 Where carefully defined benefits can be de-
 monstrated, assessment bonds may be used to
 provide financing. Although this type of financing has
 not been  used extensively in the past, management
 may want to consider this financing vehicle and
 should be aware that it may be used more frequently
 as wastewater utilities and other public agencies look
for new ways to raise capital.
  Secondary revenue offsets are generated by a
wastewater utility from activities other than the
provision of wastewater treatment services.
Secondary revenues would include: interest income;
fines and penalties; indirect cost reimbursement
proceeds; equipment sales or disposal; sales of
excess capacity and by-products such as sludge,
processed wastewater, excess oxygen or power
generation capacity, and other types of credits.
Recognizing that revenues such as those just
described provide a significant opportunity to reduce
the economic impact of rising treatment costs,
managers should make certain that efforts  are made
to maximize these revenues.

  Other service charges may be used to recover the
remaining non-0,M&R costs for which the user charge
rate structure is not appropriate. Such costs might
include: late payment penalties; septage treatment
costs; connection costs (i.e. turn on/turn off); and
other costs of general management and administra-
tive activities not directly associated with 0,M&R.

In selecting the individual type of service charge to be
used (i. e., a general service charge to all users or a
specific service charge for services which benefit only
specific users) management should consider the
nature of the costs to be recovered and any unique
local considerations which may exist.

This chapter is intended to assist the reader in
understanding the user charge requirements as a
starting pointfortimely development and approval of
user charge systems. To accomplish this objective,
the chapter is  organized into the following sections:

         —Impacts of Public Law 92-500 (Federal
           Water Pollution Control Act Amendments
           of 1972) and Public Law 95-217 (Clean
           Water Act of 1977)

          —Key User Charge Compliance Require-

          —Penalties of Noncompliance

 Impacts of Public Laws 92-500  and 95-217

 Section 201 of the Federal Water Pollution Control Act
 Amendments of 1972, Public Law 92-500, provided the
 authority by which certain municipalities within each
 state could obtain Federal grant funding for the
 construction of sewage collection, treatment, and
 disposal facilities. As a stipulation to receiving these
 Federal grants, Section 204 (b) of this Act requires that
 each grantee develop an approved system of user
 charges whch, among other requirements, must
 accomplish the following:

       1.   Ensure that recipients of wastewater
           treatment services pay their proportionate
           share of 0,M&R costs based on  the
           quantity and quality  of their discharges.
           From a regulatory perspective these costs
           are defined as follows:

                 Definition of  O,M&R Costs

           Operation and Maintenance - Expendi-
           tures incurred during the useful life of the
           treatment works for materials, labor,
           utilities and other items which are
           necessary for managing and maintaining
           the facility in order  to achieve the
           capacity and performance for which it
           was designed and constructed. The term
           "operation and maintenance," when
           used in the regulations, includes
           replacement as defined below.
    Replacement-Expenditures incurred for
    obtaining and installing equipment,
    accessories, or appurtenances during the
    useful life of the treatment works
    necessary to maintain the capacity and
    performance for which the facility was
    designed and constructed. This
    definition of replacement does not
    include expenditures for major
    rehabilitation or reconstruction upon
    expiration of the useful  life  of the
    treatment works.

2.  Generate sufficient revenues to provide
   fortheproperoperation, maintenance and
   replacement of the treatment works.

3.  Ensure that municipalities receiving
   wastewater treatment service adopt the
   user charge system and pass through
   proportionate charges to the end user. The
   user charge systems adopted by
   individual participating municipalities
   may differ from that of the grantee as long
   as the charges to the end users are
   proportionate and the systems comply
   with the user charge regulations.

Public Law 95-217, adopted in 1977, amended Public
Law 92-500 in several ways. The major changes
applicable to the development of user charge systems
are summarized below:

       1.  Ad valorem taxes may be used to collect
          all or part of the user charges.
          Municipalities electing to use this method
          must ensure thatthe portion of ad valorem
          taxes related to wastewater treatment
          (O.M&R costs) are separately identified to
          the taxpayer each year; the budgeting and
          accounting procedures mustensurethata
          specified portion of the tax funds will be
          used forthe payment of 0,M&R costs; and
          industrial users must be billed on the basis
          of actual usage. Additionally, this tax
          structure must have been in effect  on or
          before December 27,1977, and dedicated
          forthe purpose of wastewatertreatment—
          specifically O,M&R,—if it is to be the basis
          of the user charge system.

       2.  Grantees must recover the pretreatment
          program costs through the user charge
          system or from  some other identified
          source  of funds as well  as placing
          incremental costs resulting from toxic
          discharges and contaminating or
          inhibiting sludge disposal on the user
          responsible for such discharges.
Key User Charge Requirements

Public laws 92-500 and 92-217 require the EPA to
develop, as part of the Construction Grants Program,
specified regulations regarding the implementation of
user charge systems. In response to this legislative
requirement EPA promulgated Title 40 of the Code of
Federal  Regulations (CFR).

There are several parts of the code that have an effect
on the preparation and implementation of user charge
systems: Part 25 Public Participation in the Program
under the Clean Water Act; and Part 35 Subpart I Grant
for Construction of Treatment Works.

For a thorough understanding of the user charge
requirements,  managers are urged to obtain a  copy
of Title 40 of the Code of Federal Regulations.

The following  two exhibits1 summarize the key
user charge requirements and their respective
regulatory citations.
1The regulatory citations for Part 35 refer to the interim final (May 12,1982) and final (February 17,1984)
 Construction Grants Regulations.

        1.  Prepare the framework for approval of a user
           a user charge system by:

           —Insuring adequate public participation

           —Including a cost-effective analysis of the annual
            capital and O,M&R costs of the various treat-
            ment techniques techniques considered in the
            facilities plan

           —Including the cost impacts on system users
            of the technology selected

           —Demonstrating the legal, institutional,
            managerial, and financial capability to ensure
            adequate O,M&R

           —Developing a plan of operation that addresses
            the user charge system

           —Executing the proper intermunicipal service
            agreements, when necessary

        2.  Develop User Charge System which provides
           for the following:
           —Distributes O,M&R costs for wastewater
            treatment to users (or user classes in
            proportion to the total loading of each
            user (or user class)

           —Generates sufficient revenue to offset
            O,M&R costs

           —Establishes user classes as required

           —Distributes Infiltration/Inflow costs
            among all users

           —Annual notification of users

           —Establishes financial management system
            to account for revenues and expenditures

           —Ensures that toxic dischargers pay for
            the incremental costs of treatment and
            sludge disposal

           —Ensures that user charge system takes
            precedence over agreements or contracts
            between the grantee and users

35.2030 (b) (3) (vii)

35.2030 (b) (7) (iii)*

35.2104 (b)


Section 204 (b)(1) (A)
of the Act
35.2140 (a) (b)

35.2140 (a) (b)

35.2140 (e)

35.2140 (c)

35.2140 (d)

Section 301 of the Act

35.2140 (g)**
'Changed to 35.2030 (b) (8) (iv) in the Final Construction Grants Regulations published February 17, 1984

"Changed to 35.2140 (h) in the Final Construction Grants Regulations published February 17, 1984

        3. Secure user charge system approval from EPA
           or delegated state

           —Actual use                                        35.2140 (a)

           —Ad valorem taxes. This tax structure                    35.2140 (b)
             must have been in effect on or before
             Dec. 27,1977 if it is to be the base
             of a user charge system

        4.  Ensure that municipalities receiving wastewater            35.2140 (f)***
            treatment services approve the user charge
         5.  Develop user charge ordinance                         35.2140 (f)

         6.  Secure user charge system approval                     35.2122



         1.  Ensure that municipalities receiving                     35.2140 (f)***
            wastewater treatment services adopt
            a user charge system and incorporate
            it in municipal legislative enactments
            or other appropriate authority.

         2.  Ensure that user charge system is                       35.2208
            implemented when wastewater treatment
            facility becomes operational.

         3.  Notify users annually regarding the following:

            —user charge rates                                  35.2140 (c)

            —portion of ad valorem taxes related to                  35.2140 (c)
             wastewater treatment services.

Penalties of Noncompliance

The Construction Grants Program regulations are very specific as to when in the grant process the grantee is to
have a user charge system developed and approved. The grantee should be aware of the general noncompliance
provisions contained in 40 CFR and 30.900, General Regulations for Programs, which include: termination/annulment
of the grant; disallowance of project  costs; withholding of grant funds; suspension of project work; and institution
of other actions.

 ***Changed to 35.2140 (g) in the Final Construction Grants Regulations published February 17, 1984


                                            APPENDIX I

                              TYPICAL OPERATING BUDGET LINE ITEMS
Salaries and Wages:
       Part time
       Per diem

Indirect Salary and Wage Costs:
       Health Insurance
       Workmen's Compensation
       Unemployment Insurance
       Other Costs (vacations, sick leave, etc.

Contractual Services
       Financial (Audit)
       Power—electrical fuel requirements for treat-
       ment works processing and plumbing
       Power—electrical and fuel requirements for
       buildings and administrative offices

Equipment Replacement
       Tools over $100.00
       Laboratory equipment
       Motor vehicles
       Mowing equipment
       Office equipment
       Pumps with a value over $100.00
       Motors with a value over $100.00
Materials and Supplies
       Motor vehicle fuel and lubricants
       Laboratory supplies
       Tools under $100.00
       Office supplies
       Cleaning supplies
  Note:  These line items would apply, as appropriate, to treatment operations, sewer system maintenance,
         billing, and other administrative functions.

                                         APPENDIX II

                                      FOR O,M&R COSTS

                                      KEY ASSUMPTIONS
The assumptions included in this section are representative of a 5-10 mgd activated sludge plant which
provides secondary wastewater treatment to its users. Presented below are six tables outlining the key
assumptions which have been developed for purposes of illustrating the User Charge rate calculations provided
in subsequent pages. The tables are:
               Table 1:       Identifies the total 0,M&R costs of the wastewater treatment
                            plant and allocates those costs by volume, Biochemical
                            Oxygen Demand, and Suspended Solids.

               Table 2:       Identified selected annual operating statistics needed to
                            calculate excess BOD and SS.

               Table 3:       Establishes Numberof Equivalent Dwelling Units where
                            measured flow statistics are not available.

               Table4:       Calculation of Normal Domestic Sanitary Sewage Loadings.

               TableS:       Excess Amount of BOD and SS.

               Table 6:       Percentage of Normal Loadings to Actual Loadings.
 Tables 1 and 2 are used in all the sample calculations. Table 3 is applicable to The Volume Method using
 Equivalent Dwelling Units. Tables 4,5, and 6 are used to develop The Surcharge Method.
                        The following abbreviations are used in this appendix:

                        BOD     -Biochemical oxygen demand
                        mg      -Milliongallons
                        mgd     -Milliongallonsperday
                        mg/L     -Milligrams per liter
                        0,M&R   -Operation, maintenance and replacement
                        SS      -Suspended solids


Unit Process
Collection system
Grit and screen
Primary clanfier
Aeration and
Secondary clanfier
Solids disposal
Plant Water
General plant
Reserve equipment
Allocation of
general costs*
Allocation of
Total O.M&R costs
'The general costs
O.M&R costs
Volume BOD
Total Annual
Costs Percent Amount Percent Amount
$ 239,000 100% $239,000 — —
26,000 — — — —
55,000 80 44,000 — —

316,000 — — 100% $316,000
17,000 100 17,000 — —

390,000 — — 50 195,000

17,000 100 17,000 — —


$1,647,000 $317,000 $511,000

121,700 196,200

53,800 86,800
$1,647,000 $492,500 $794,000
(General Plant Services, Administration) have been allocated to the unit processess in the


Percent Amount
100% $ 26,000
20 1 1 ,000

— —
— —

50 195,000

— —



same proportion as were

"Reserves for equipment replacement have been allocated on the basis of prior year's cost experience.
2,993 mg
7,600,000 Ibs
8,000,000 Ibs
Single family residence
Apartments (1-2 bedrooms)
Apartments (3 or more bedrooms)
Retail stores
Taverns (15 chairs or seats)
Total EDUs

Units Served

Total EDUs


TABLE 4 NORMAL DOMESTIC SANITARY SEWAGE LOADINGS (Based on Sampling Results of Residential Users)

Influent Concentration (mg/L)
Conversion factor (wgt. -1 gallon of water)
Influent Concentration in Ibs/mg
Annual Volume - mg (table 2)
Normal Domestic Sanitary Sewage Loadings
X 8.34 Ibs
X 2,993
6,866,000 Ibs
X 8.34 Ibs
X 2,993
6,866,000 Ibs

Annual Usage (Table 2)
Normal Loadings (Table 3)
6,866,000 Ibs
734,000 Ibs
8,000,000 Ibs
6,866,000 Ibs
1,1 34,000 Ibs

               6,866,000 H- 7,600,000 = 90%
6,866,000 -r 8,000,000 = 86%
                                       FORMULA DEFINITIONS
                    Ba   =  Totalannual poundsof BOD
                    Bb   =  Annual O.M&R surcharge for excess BOD
                    Bl    =  Excess pounds of BOD contributed annually by all users
                    Bp   =  Percentageof Normal Domestic BOD to Actual (TableS)
                    Bt    =  Total annual 0,M&R unit processing costsfor BOD
                    Ca   =  Annual user charge rate
                    Cd   =  Annual user charge rate for normal domestic sanitary sewage
                    Ce   =  Annual usercharge rate perequivalent dwelling unit
                    Ct    =  Total annual 0,M&R costs
                    Cv   =  Total annual 0,M&R unit processing costs for volume
                    Et    =  Total numberof Equivalentdwelling units
                    Ob   =  Usercharge rate by unit process for BOD
                    Os   =  Usercharge rate by unit process for SS
                    Ov   =  Usercharge rate by unit processforvolume
                    Sa   =  Totalannual poundsof SS
                    Sb   =  Annual 0,M&R surcharge for excess SS
                    SI    =  Excess pounds of SS contributed annually by all users
                    Sp   =  Percentageof Normal Domestic SS to Actual (Table 6)
                    St    =  Total annual 0,M&R unit processing costsforSS
                    Vt    =  Totalannual volume

                                    VOLUME METHOD OF CALCULATING USER CHARGES

1. Calculation of Volume Rate based on measured flow:

      Formula:  Ca=Ct/Vt
      Example: Ca = $1,647,000                            Ca = $550/mg
                    2,993 mg

2.  Calculation of Volume Rate using Equivalent Dwelling Units:
      Formula:  Ce = Ct/Et
      Example:  Ce = $1,647,000
                      29,945   (TableS)
                                  Ce = $55/EDU

      Determine user charge rate for treating normal domestic sanitary sewage.

      Formula: Cd= Cv +  (Bt) BD) + (St) (Sp)

      Example:  Cd=  $492.500 + ($794.000) (90%) + ($360.500) (86%)
                                     2,993 mg

               Cd=  $1.519.200
                    2,993 mg

               Cd =  $508  mg

      Calculation of surcharge rates (added to volume rate):
Bb = Bt/Ba
                                      Sb =  St/Sa
                      Bb =
7,600,000 Ibs
                                            Sb=   $360.000
                                                8,000,000 Ibs

                                            Sb=  $.05/lb
      Formula:   Volume

                Qv = Cv/vt

      Example:   Qv = $492.500
                    2,993 mg

                Qv = $165/mg
                     QUALITY /QUAIMITY METHOD**


                      Qb = Bt/Ba

                      Ob=  $794.000
                          7,600,000 Ibs

                      Qb = $.

                                                       Qs = St/Sa

                                                       Qs =   $360.500
                                                            8,000,000 Ibs

                                                       Qs = $.05/lb
      **The quality/quantity method should not be used when there are less than normal strength discharges. Since weak
        wastes are more expensive to than normal domestic sewage (because the plant is designed to function within a specific
        range of concentrations), charging weak strength users rates based on normal domestic strength sanitary sewage will
        result in a shortfall.

                                           APPENDIX III

                                MODEL USER CHARGE ORDINANCE
                                  ORDINANCE NO	

  An ordinance establishing user charges in the city (town, sewage district, etc.) to provide funds needed to
pay for operation and maintenance expenses associated with the	's wastewater treatment
_, has constructed wastewater treatment works; and
                               _'s intent to establish proportionate user charges that places the costs of
WHEREAS, it is the	
abatement directly on the sources of pollution, conserves potable water, and maintains financial self-sufficiency,
treatment works and charge the users of said treatment works accordingly:
                           _must pay the operation and maintenance expenses associated with the said
that the following user charges are established.
                                                   _, of the.
                    ARTICLE I

It is determined and declared to be necessary and
conducive to the protection of the public health,
safety, welfare and convenience of the.
                       to collect charges from all
users who contribute wastewater to the
	treatment works. The proceeds of
such charges so derived will be used forthe purpose
of operating and maintaining the public wastewater
treatment works.

                   ARTICLE II

Unless the context specifically indicates otherwise,
the meaning of terms used in this ordinance shall be
as follows:

Section 1: "BOD" (denoting Biochemical Oxygen
Demand)  shall mean the quantity of oxygen utilized
in the biochemical oxidation or organic matter under
standard laboratory procedure in five (5) days at 20°C,
expressed in milligrams per liter (mg/l).

Section 2: "Normal Domestic Wastewater" shall
mean wastewater that has a BOD concentration of not
more than	mg/ and a suspended solids
concentration of not more than	mg/1
(and any other pollutant, specify, concentration of not
more than	mg/1).

Section 3: "Operation and Maintenance" shall mean
those functions that result in expenditutes during the
useful life of thetreatment works for materials, labor,
utilities and other items which are necessary for
managing and which such works were designed and
"constructed. The term "operation  and maintenance"
includes replacement as defined in section 4.       20
                                                    Section 4: "Replacement" shall mean expenditures
                                                    for obtaining and installing equipment, accessories or
                                                    appurtenances which are necessary during the useful
                                                    life of the treatment works to maintain the capacity
                                                    and performance for which such works were designed
                                                    and constructed.

                                                    Section 5: "Residential User" shall mean any
                                                    contributor to the city's treatment works whose lot,
                                                    parcel or real estate, or building is used for domestic
                                                    dwelling  purposes only.

                                                    Section 6: "Commercial User" shall mean all retail
                                                    stores, restaurants, office  buildings, laundries, and
                                                    other private business and service establishments.

                                                    Section 7: "Industrial User" shall include any
                                                    non-governmental, non-residential user of publicly
                                                    owned treatment works which is identified in the
                                                    Standard Industrial Classification Manual, 1972, Office
                                                    of Management and Budget, as amended and
                                                    supplemented, under the  following divisions;
                                                    Division A-Agriculture, Forestry, and Fishing; Division
                                                    B-Mining; Division D -Manufacturing; Division
                                                    E-Transportation, Communications, Electric, Gas and
                                                    Sanitary; and Division I -Services.

                                                    Section 8: "Institutional User" shall include social,
                                                    charitable, religions, and educational activities such as
                                                    schools, churches, hospitals, nursing homes, penal in-
                                                    stitutions and similar institutional users.

                                                    Section 9: "Governmental User" shall include legisla-
                                                    tive, judicial, administrative, and regulatory activities
                                                    of Federal,  State and local governments.

                                                    Section 10: "Shall" is mandatory;  "May" is  permis-

Section 11: "SS" (denoting Suspended Solids) shall
mean solids that either float on the surface of or are
in suspension in water, sewage, or other liquids and
which are removable by laboratory filtering.

Section 12: "Treatment Works" shall mean any de-
vices and systems for the storage, treatment, recycling
and reclamation of municipal sewage, domestic sew-
age or liquid industrial wastes. These include inter-
cepting sewers, outfall sewers, sewage collection sys-
tems, pumping, power, and other equipment and their
appurtenances; extensions improvement, remodel-
ing, additions and alterations thereof; elements essen-
tial to provide a reliable recycled supply such as
standby treatment units and clear well facilities; and
any works, including site acquisition of the land that
will be an integral part of the treatment process or is
used for ultimate disposal of residues resulting from
such treatment (including land for composting sludge,
temporary storage of such compost and land used for
the storage of treated wastewater in land treatment
systems before land application); or any other method
or system for preventing, abating, reducing,  storing,
treating, separating or disposing of municipal waste
or industrial waste, including waste in combined
storm water and sanitary sewer systems.

Section 13: "Useful  Life" shall mean the estimated
period during which a treatment works will be oper-

Section 14: "User Charge" shall mean that portion of
the total wastewater service charge which is levied in
a proportional and adequate mannerforthe cost of op-
eration, maintenance and replacement of the waste-
water treatment works.

Section 15: "Water Meter" shall  mean a water volume
measuring and recording device, furnished and/or in-
stalled by a user and approved by the	
                   ARTICLE III

Section 1: The revenues collected, as a result of the
user charges levied, shall be deposited in a separate
non-lapsing fund know asthe Operation, Maintenance
and Replacement Fund.

Section 2: Fiscal year-end balances in the operation,
maintenance, and replacement fund shall be used for
no other purposes than those designated. Monies
which have been transferred from other sources to
meet temporary shortages in the operation, mainte-
nance and replacement fund shall be returned to their
respective accounts upon appropriate adjustment of
the user charge rates for operation, maintenance and
replacement. The user charge rate(s) shall be adjusted
such that the transferred monies will be returned to
their respective accounts within six months of the fis-
cal year in which the monies were borrowed.

                   ARTICLE IV

 (Rates and Charges Based on the Surcharge Method)

NOTE: Presented below is an example of a Rates and
       Charges Section of a user charge ordinance.
       The example presented is for illustrative pur-
       poses only. Since each local ordinance must
       be tailored to reflect unique local conditions.
       The methodology  used to construct this sec-
       tion may well vary from the example pre-

Section 1: Each user shall pay for the services pro-
vided by the	based on his use
of the treatment works as determined by water meter
readings (or other appropriate methods) acceptable to

Section 2: For residential, industrial, institutional and
commercial users, monthlyuser charges will be based
on actual water usage. If a residential, commercial, in-
stitutional, or industrial user has a consumptive use
of water, or, in some other manner, uses water which
is not discharged into the wastewater collection sys-
tem, the user charge for that contributor may be based
on readings of a wastewater meter(s) or separate
water meter(s) installed and maintained atthe user's

Section: 3 (Reference is made to Appendix III-A of this

Each user shall pay a user charge rate for  operation
and maintenance including  replacement of
$	per 1000 gallons of water.
Section 4: (Reference is made to Appendix
For those users whose wastewater has a greater
strength than normal domestic sewage, a surcharge
in addition to the normal user charge, will be collected.
The surcharge for operation and maintenance
including replacement is:
_per pound BOD
^perpound SS
_per pound Other Pol-
 lutant(s) (Specify)

Section 5: Any user which discharges any toxic
pollutants (as defined in the Sewer Use Ordinance)
which cause an increase in the cost of managing the
effluent of the sludge from the	's
treatment works, or any user which discharges any
substance which singly or by interaction with other
substances causes identifiable increases in the cost of
operation, maintenance or replacement of the
treatment works, shall pay for such increased costs.
The charge to each such user shall be as determined
by the appropriate financial personnel and approved
by the	

Section 6: The user charge rates established in this
article apply to all users of the	's
treatment works.

                    ARTICLE V

(Note: Late payment criteria and penalties are
outlined in Article V. The criteria and penalties shown
are for illustrative purposes only. The wastewater
utility may use whatever criteria and penalties it
deems appropriate.)

Section 1: All users shall be billed monthly. Billings
for any particular month shall be made within ten days
after the end of the month. Payments are due within
twenty days after the end of the month. Any payment
not received within thirty days after the end of the
month shall be delinquent.

Section 2: A late payment penalty of 7 percentoithe
user charge bill will be added to each delinquent bill
for each thirty daysor portion thereof of delinquency.
When  any bill  is more than ninety days in default,
water and/or sewer service to such premise shall be
discontinued until such bill is paid.

Section 3: When any bill (including interest and
penalty) remains unpaid for one year after the date
due, such bill shall be recorded in the land records of
	by the treasurer and shall
constitute a lien on the property. If such lien (including
interest and penalty) remains unpaid for a period of
one year after date of recordation, such property shall
be subject to public sale by the  treasurer.
               forthat user. The.
    .shall have the right
                    ARTICLE VI

 All users contributing more than.
 per month and whose waste strength is greater than
                 _mg BOD/1 or	mg SS/1
 shall prepareandfilewiththe.
_a report
 that shall include pertinent data relating to the
 wastewater characteristics, including the methods of
 sampling and measurment to obiain these data, and
 these data shsll be used to calculate the user charge
               to gain access to the waste stream and take its own
               samples. Should the	do so and should
               the results be substantially different as determined by
               	from the data submitted by the user,
               the user charge for that user shall be revised for the
               next  billing cycle/period.

                                  ARTICLE VII

               Section 1: Any userwhofeels his usercharge is unjust
               and inequitable may make written application to the
               	requesting a review of his user charge.
               Said  written request shall, where necessary, showthe
               actual or estimated average flow and/or strength of
               his wastewater in comparison with the values upon
               which the charge is based, including how the
               measurements or estimates were made.

               Section2: Reviewofthe requestshall  be made bythe
               	and if substantiated, the user charges
               for that user shall be recomputed based on the revised
               flow and/or strength data and the new charges shall
               be applicable to the next billing cycle/period.
                                  ARTICLE VIII
               Section 1: The
_will review the user
               charges at least annually and revise the rates as
               necessary to ensure that adequate revenues are
               generated to pay the costs of operation and mainte-
               nance including  replacement and  that the system
               continuesto provideforthe proportional distribution
               of operation and maintenance including replacement
               costs among users and  user classes.

               Section 2: The	will notify each user at
               least annually ofthe rate  being charged for operation,
               maintenance including replacement ofthe treatment
               Passed bythe_
                                 ARTICLE IX
                               - this .
 . day of.
                                                             Approved this
                                         . day of.
                 _, 19-


                                   (Actual Use Rate Structure)

This appendix presents the methodology to be used in calculating user charge rates and surcharges and
illustrates the calculations followed in arriving at the first year's user charges and surcharges.
  1. Expenses: Total Annual Expenses By Unit Process Are:
 Unit Process
Total Annual
Other (Specify)
 Allocation of
 general costs

 Allocation of

 Total OM&R

   2.  Loadings:

 The total water consumption is estimated to be_

 The BOD loading is estimated to be	
 The SS loading is estimated to be	
 The	   _ loading is estimated to be
   3.  Unit Costs:

 Total annual OM&R costs in $/1,000 gallons =.
                                Total annual OM&R $

                                                                       . pounds/year.

                                                                       . pounds/year.

                                                                       _ pounds/year.
                                            Estimated annual water consumption/1,000 gallons.

 Unit cost for BOD in $/pound =   Annual $ to treat annual SS
                              Estimated annual BOD loading

 Unit cost for SS in $/pound = Annual $ to treat annual SS
                            Estimated annual SS loading

 Unit cost for other pollutants = Annual $ to treat other annual pollutants
                              Estimated annual other pollutant loading

 The costs for total OM&R, BOD, SS and Other Pollutants  are to be inserted in Article IV, Section 3 and 4 of the

The following terms shall be defined as:

Assessment: (1) The process of making the official
valuation of property for purposes of taxation. (2) The
valuation placed property as a result of this process.
(3) The charge against any particular parcel of land
within the boundaries of an irrigation, water, sewer,
drainage, or other district created for the purpose of
constructing improvements, or a share of the total
cost of such improvement, usually based on the
proportionate benefits received by such parcel as a
result of the improvement.

Assessments, special: A direct tax levy assessed
against property to pay for property improvements
that ordinarily are a direct benefit to the property itself.

Assets: Any real property and property rights that are
of value to and owned by the enterprise (utility).

  Capital: Property of a permanent nature or intended
  for long continued use or possession, employed in
  or necessary for the conduct of an undertaking, and
  representing the investment of money or its
  equivalent. Examples include trucks, meters,
  pumps, and motors.

  Fixed: Permanent property, such as land, buildings,
  sewer collection pipelines, tanks, rights and
  benefits (tangible and intangible), permanently
  employed in the rendering of a service or in the
  production of a product.

  Intangible: Any element of value applied to
  permanent property of a non-physical nature such
  as a franchise, trademark,  patent, copyright, good
  will, cost of organizing, developing, and  establish-
  ing; also, such items as going value, right of access,
  water right, and power right.

  Physical: See assets, tangible.

  Tangible: Permanent property of a physical nature
  such as lands, buildings, mineral deposits, wells,
  reservoirs, plant equipment of all kinds,  utensils,
  furnishings, merchandise intended for immediate
  use and permanent improvements.

Authority: A government of public agency created to
perform a single function or a restricted group of
related activities. Usuallysuch unitsare financed from
service charges, fees, and tolls, but in some instances
they also have taxing powers. An authority may be
completely independent of other governments for its
creation, its financing, or the exercise of certain

Betterment: An addition made to, or change made in,
a fixed or capital asset which is expected to prolong
its life, expand its capacity, or increase its efficiency
beyond initial design parameters and over and above
that arising from maintenance, and the cost of which
is therefore added to the book value of the asset. The
term is sometimes applied to sidewalks, sewers, and
highways, but it is preferable to designate these as
"improvements."  See also improvements.

Biochemical oxygen demand (BOD): The quantity of
oxygen utilized in the biochemical oxidation of
organic matter in a specified time and at a specified
temperature, usually at 5 days  and  20°C.

Capital Costs:  Costs of major rehabilitation, better-
ments, expansion or upgrading required as facilities
reach the end of their useful life.

Capital Outlays: Expenditures which result in the
acquisition of or addition to fixed assets.

Collection System: The sewer  lines and appurte-
nances used and useful  in the collection and con-
veyance of wastewater. See also wastewater system.

Commercial User: All retail stores, restaurants, office
buildings, laundries, and other private business and
service establishments.

Enterprise Fund: A fund established to account for
operations (a) that are financed and operated  in  a
mannersimilarto private business enterprises where
the intent of the governing body is  that the costs
(expenses, including depreciation) of providing goods
or services to the general public on a  continuing basis
be financed or recovered primarily  through user
charges; or (b) where the governing body has decided
that periodic determination  of revenues earned,
expenses incurred, and/jor net income is appropriate
for capital maintenance, public policy, management
control, accountability,  or other purposes. Examples
of Enterprise Funds are those for water, gas, and
electric utilities; swimming  pools; airports; parking
garages; and transit systems.

Governmental: Shall include legislative, judicial,
administrative, and regulatory activities of Federal,
State, and local governments.

Grantee: A municipality that has executed a Federal
grant agreement.

Improvements: Buildings, other structures, and other
attachments or annexations to land which are
intended to remain so attached or annexed, such as
sidewalks, trees, drives, tunnels, drains, and sewers.
Sidewalks, curbing, sewers, and highways are
sometimes referred to as "betterments," but the term
"improvements" is preferred.

Industrial User: Any nongovernmental, nonresidential
user of publicly owned treatment works which is
identified in the Standare Industrial Classification
Manual,  1972, Office  of Management and Budget, as
amended and supplemented, under the following
divisions: Division A - Agriculture, Forestry, and
Fishing; Division B- Mining; Division D- Manufactur-
ing;  Division  E - Transportation, Communications,
Electric, Gas, and Sanitary; and Division I- Services.

Infiltration: Water other than wastewater that enters
a sewer system (including sewer service connections
and foundation drains) from the ground through such
means as defective pipes, pipe joints, connections, or
manholes. Infiltration does not include, and  is
distinguished from, inflow.

Inflow: Water other than wastewater that enters a
sewer system (including sewer service connections)
from sources such as, but not limited to, roof leaders,
cellar drains,  yard drains, area drains, drains from
springs and swampy areas, manhole  covers, cross
connections between storm sewers and sanitary
sewers, catch gasins, cooling towers, storm  waters,
surfasce  runoff, street wash waters, or drainage.
Inflow does not include, and is distinguished from

Institutional: Shall include social, charitable, religious,
and educational activities such as schools, churches,
hospitals, nursing homes, penal institutions and
similar institutional users.

Operation and Maintenance: Those functions that
result in expenditures during the useful life of the
treatment works for  materials, labor, utilities, and
other items which are necessary for managing  and
maintaining the sewage works to achieve the capacity
and performanceforwhich such works weredesigned
and constructed.
Rate Base: The value of utility property used in
computing an authorized rate of return as authorized
by law or  a regulatory commission.

Replacement: Expenditures for obtaining and
installing equipment, accessories, or appurtenances
which are necessary during the useful  life of the
treatment works  tomaintain the capacity and perfor-
mance for which such works were designed and
contrructed. The  term "operation and maintenance"
(O&M) includes replacement.

Replacement Costs: The cost as of a certain date of a
property which can reder similar service (but which
need not be of the same structural form) as the
property to be replaced. Replacement is an incremen-
tal element of operating costs and is variable depend-
ing upon levelsof expendituresformaintenance.The
statutory definition of the term means expenditures
for obtaining and installing equipment, accessories or
appurtences during the useful life of the treatment
works necessary to maintain the  capacity and
performance for  which they were designed and
constructed. It is not  a capital cost and does  not
increase the book value of an asset.

Residential: Shall include all dwelling units such as
detached, semi-detached, row-houses, mobile homes
and multi-family dwellings.

Service Charge:  A charge levied on a user  of the
treatment works  which includes a user charge, a
charge for capital reserve and debt service, other
charges for current services, or all of these.

Suspended solids: Solids that either float on the
surf ace of or a re in suspension in water, wastewater,
or other liquids and that are removable by a standard
laboratory filtering procedure.

User: A recipient of wastewater treatment services.

User Charge: A charge levied on users of a treatment
works for the cost of operation and maintenance,
including  replacement.

Wastewater System:  (wastewater facility) Acollective
term used to denote  all the property involved in the
operation of a wastewater treatment utility. It includes
land, sewer lines and appurtenances, pumping
stations, treatment plants, and general property. See
also wastewater  utility. Synonym: Sewer System.

Wastewater Utility: An enterprise, the principal
objective of which is  the rendering  of wastewater

U.S. 1Mv«ronflfu>«tpi fyptecuon Agency
Rev,on V, Library
230 South Dearborn Street
Chicago,  Illinois  606Q4